Analyst Note| Joshua Aguilar |
Wide-moat rated 3M had a solid third quarter that we think the market failed to appreciate. While we were initially frustrated by the company’s inability to meet its guide in multiple quarters pre-COVID-19, we think the stock is finally making a turn. The company is running decently ahead of our prior revenue forecast, and well ahead of our prior earnings free cash flow forecast. We now expect $31.8 billion of sales in full-year 2020, adjusted EPS of $8.56, and free cash flow (cash flow from operations less capital expenditures) of $5.9 billion, even with an elevated free cash flow forecast. As a result, we raise our fair value estimate to $180 per share, from $166 previously (or about a 7% raise, net of time value of money impacts). It is our hope that the company continues to deliver on growth once again and re-earn both its premium multiple and reputation as a reliable short-cycle business, whose stocks are best to buy in the early parts of the cycle.